August rate cut hopes get a fillip

Economists pencil in 25 bps reduction in the repo rate by December

- ANJALI KUMARI

The prospects of a further easing in policy rates by the Reserve Bank of India's Monetary Policy Committee (MPC) have become brighter with the headline retail inflation plummeting to a 77-month low of 2.1 per cent in June. While most economists expect the next rate cut to be effected in October or December, the probability of a reduction as early as August has also heightened.

Irrespective of the timing, the hopes of more rate cuts on top of the 100 basis points (bps) of reductions effected since February to bring the policy rate to 5.5 per cent, are also fueled by expectations that retail inflation through this financial year (FY2026) may undershoot the RBI's projection of an average 3.7 per cent uptick in the key price gauge. Most economists have lowered their FY26 retail price rise projection after June's Consumer Price Index (CPI) was released on Monday.